Topic 04 of 6 · Chapter 01 · Indian Economy

Per Capita Income, HDI & Economic Indicators

Per capita income, Human Development Index (HDI), Gini coefficient, purchasing power parity — all explained with examples.

📋 In This Article

Per Capita Income
Human Development Index (HDI)
Gini Coefficient
Purchasing Power Parity (PPP)
Key Points for Exam

1. Per Capita Income

Per Capita Income = National Income ÷ Total Population. It measures the average income of a person in a country.

💡 Example

If India’s National Income = ₹200 lakh crore and Population = 140 crore
Per Capita Income = ₹200 lakh crore ÷ 140 crore = ~₹1.43 lakh per person per year

Limitation: Per capita income is an average — it hides inequality. If 10 people have ₹0 and 1 person has ₹110, the average is ₹10 — but 10 people have nothing!

⭐ India’s Per Capita Income: India’s per capita income (~$2,500 nominal) is much lower than developed countries like USA (~$65,000) or Germany (~$50,000). This is why India is classified as a lower-middle income country by the World Bank.

2. Human Development Index (HDI)

HDI was developed by UNDP (United Nations Development Programme) and introduced by Pakistani economist Mahbub ul Haq in 1990. It measures human development beyond just income.

📚

Education Index

Mean years of schooling + Expected years of schooling

❤️

Health Index

Life expectancy at birth

💰

Income Index

GNI per capita (PPP $)

💡 HDI Scale: 0 to 1 (higher is better)
• Very High HDI: 0.800 and above (Norway, Switzerland, USA)
• High HDI: 0.700–0.799
• Medium HDI: 0.550–0.699 (India falls here)
• Low HDI: Below 0.550

✅ India’s HDI Rank: India ranks around 132nd out of 191 countries (HDR 2021/22) with an HDI of ~0.633 — in the Medium Human Development category.

3. Gini Coefficient

The Gini Coefficient measures income inequality in a country. It ranges from 0 to 1 (or 0 to 100).

0 (or 0%) = Perfect equality — everyone has the same income
1 (or 100%) = Perfect inequality — one person has all the income

💡 Example

India’s Gini coefficient is approximately 35–36 (on a 0–100 scale).
South Africa has one of the highest Gini coefficients (~63) — very unequal.
Nordic countries (Sweden, Norway) have low Gini (~25–28) — more equal.

A higher Gini = more inequality = rich getting richer, poor getting poorer.

4. Purchasing Power Parity (PPP)

PPP adjusts exchange rates to compare the actual purchasing power of different currencies. It answers: “How much can $1 actually buy in each country?”

💡 Big Mac Index Example

A Big Mac costs $5 in the USA and ₹200 in India.
At market exchange rate: ₹200 = ~$2.40 (not $5)
This means ₹200 in India buys what $5 buys in the USA.
So India’s PPP exchange rate is ₹200/$5 = ₹40 per dollar (not the market rate of ~₹83).

By PPP, India is the 3rd largest economy in the world — because Indian rupees buy much more in India than their dollar equivalent suggests.

5. Key Points for Exam

🔑 Must-Remember Facts

Per Capita Income = National Income ÷ Total Population
HDI developed by UNDP; introduced by Mahbub ul Haq in 1990
HDI has 3 components: Education, Health (Life Expectancy), Income (GNI per capita)
India’s HDI rank: ~132nd (Medium Human Development)
Gini Coefficient: 0 = perfect equality; 1 = perfect inequality
India’s Gini coefficient: ~35–36
PPP adjusts for purchasing power differences between countries
By PPP, India is the 3rd largest economy in the world
By nominal GDP, India is the 5th largest economy
World Bank classifies India as lower-middle income country

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